Support Payments and the Tax Consequences

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When are support payments tax-deductible? It turns out the rules are quite complicated.

Prior to 1997 spousal and child support were generally deductible in computing the payer’s income for the year, and so they were included in computing the income of the recipient spouse. This is called the “deduction-inclusion” system.

In 1997 the federal government introduced a set of detailed guidelines reversing the “deduction-inclusion” system, mandating that support payments must qualify under the Income Tax Act to be considered deductible.

In general, child support payments made pursuant to an agreement or a court order after May 1997 are not deductible on the part of the payer and are not included on the part of the recipient. The amount paid is considered after-tax spending, just like money each parent would have spent had the separation not occurred.

For spousal support payments, the rules become slightly more complicated.

Periodic(for example, weekly or monthly) spousal support payments made pursuant to an agreement or a court order after May 1997 are subject to the “deduction-inclusion” rule. This means that the amount paid is deductible on the part of the payer and must be included on the part of the recipient.

Lump-sum spousal support payments made pursuant to an agreement or a court order after May 1997, on the other hand, do not qualify for the “deduction-inclusion.” Therefore they are not deductible on the part of the payer and are not included as income on the part of the recipient.

Please Note: This article is provided for information and educational purposes. It does not constitute legal advice and should not be regarded as such. Legislation referred to may have been amended or repealed since the publication of the article.